FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ending March 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number 1-2333
LONE STAR INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE No. 13-0982660
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 First Stamford Place, P. O. Box 120014, Stamford, CT 06912-0014
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 203-969-8600
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
In December, 1990, registrant and certain of its wholly-owned
subsidiaries each filed voluntary petitions for relief under
Chapter 11, Title 11 of the United States Code with the United
States Bankruptcy Court for the Southern District of New York. The
registrant's Modified Amended Consolidated Plan of Reorganization
("Plan of Reorganization") became effective on April 14, 1994 and
on that date all of its old equity securities were cancelled and
new equity securities were issued to holders of claims in the
Bankruptcy and holders of old equity securities.
The number of shares outstanding of each of the registrant's
classes of new Common Stock as of May 10, 1994:
Common Stock, par value $1 per share - 11,115,040 shares
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Operations (Unaudited) -
For the Three Months Ended March 31,
1994 and 1993...................................... 3
Consolidated Statements of Retained Earnings
(Unaudited) - For the Three Months Ended
March 31, 1994 and 1993............................ 4
Consolidated Balance Sheets - March 31, 1994
(Unaudited) and December 31, 1993................... 5
Consolidated Statements of Cash Flows (Unaudited) -
For the Three Months Ended March 31, 1994 and 1993.. 6
Notes to Financial Statements........................ 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..... 25
PART II. OTHER INFORMATION................................... 30
SIGNATURES.................................................... 32
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LONE STAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In Thousands) Predecessor Company
<CAPTION>
For the Three Months
Ended March 31,
1994 1993
Consolidated Income
<S> <C> <C>
Revenues:
Net sales $33,709 $32,477
Joint venture income 381 1,629
Other income, net 2,691 2,570
36,781 36,676
Deductions from revenues:
Cost of sales 29,694 28,501
Selling, general and administrative
expenses 9,836 10,206
Depreciation and depletion 6,688 6,584
Recover of litigation settlements (6,500) -
Interest expense (contractual interest
of $7,631 in 1994 and $7,900 in 1993) 233 474
39,951 45,765
Loss before reorganization items and income taxes (3,170) (9,089)
Reorganization items:
Adjustments to fair value (133,917) -
Other items (13,396) (2,608)
(147,313) (2,608)
Loss before income taxes and cumulative effect of change
in accounting principle (150,483) (11,697)
Provision for income taxes (155) (1,878)
Loss before cumulative effect of change in accounting principle
and extraordinary item (150,638) (13,575)
Cumulative effect of change in accounting principle:
Postretirement benefits other than pensions - (782)
Extraordinary item: gain on discharge of prepetition liabilities 127,520 -
Loss before preferred dividends (23,118) (14,357)
Provision for preferred dividends (1,278) (1,278)
Net loss applicable to common stock ($24,396) ($15,635)
Primary and fully diluted loss per common share:
Loss before cumulative effect of changes in accounting principles (a) (a)
Cumulative effect of changes in accounting principles (a) (a)
Extraordinary gain on discharge of prepetition liabilities (a) (a)
Net loss (a) (a)
(a) Earnings per share are not meaningful due to reorganization and revaluation entries and
the issuance of 12 million shares of new common stock.
The accompanying Notes to Financial Statements are an integral part of the Financial
Statements.
3
</TABLE>
<TABLE>
LONE STAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (Unaudited)
(In Thousands)
<CAPTION>
For the Three Months
Ended March 31,
1994 1993
<S> <C> <C>
Predecessor Company:
Retained earnings, beginning of period ($187,896) ($151,856)
Net loss of predecessor company (23,118) (14,357)
Accumulated deficit, predecessor company (211,014) ($166,213)
Elimination of accumulated deficit 211,014
Successor company:
Retained earnings, end of period $0
The accompanying Notes to Financial Statements are an integral part of the
Financial Statements.
4
</TABLE>
<TABLE>
LONE STAR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
Successor Predecessor
Company | Company
|
March 31, | December 31,
1994 | 1993
(Unaudited) |
|
<S> <C> <C>
Assets: |
Current assets: |
Cash including cash equivalents of $3,498 and $243,220 $12,147 | $244,397
Accounts and notes receivable, net 29,711 | 49,022
Inventories: |
Finished goods 23,743 | 20,277
Work in process and raw materials 2,126 | 1,987
Supplies and fuel 18,925 | 16,162
44,794 | 38,426
|
Current assets of assets held for sale - | 20,634
Other current assets 15,127 | 2,733
Total current assets 101,779 | 355,212
|
|
Net assets of liquidating subsidiary (See Note 5 on page 14) 112,000 | -
Assets held for sale - | 65,663
Notes receivable 105 | 5,058
Joint ventures 17,500 | 88,574
|
Property, plant and equipment 332,263 | 682,830
Less accumulated depreciation and depletion - | 284,745
332,263 | 398,085
|
Reorganization value in excess of amounts allocable to |
identifiable assets 14,372 | -
Cost in excess of net assets of businesses acquired, net - | 9,273
Other assets and deferred charges 1,392 | 3,020
Total assets $579,411 | $924,885
|
Liabilities and Shareholders' Equity: |
Current liabilities: |
Accounts payable $15,927 | $16,079
Accrued liabilities 68,718 | 60,353
Other current liabilities 2,994 | 3,227
Total current liabilities 87,639 | 79,659
|
Assets proceeds notes of liquidating subsidiary (See |
Note 5 on page 14) 112,000 | -
Senior note payable 78,000 | -
Production payment 18,463 | -
Deferred income taxes 5,000 | 3,356
Postretirement benefits other than pensions 125,260 | 141,950
Pensions 22,351 |
Other liabilities 37,385 | 21,886
|
Liabilities subject to Chapter 11 proceedings - | 627,938
|
Contingencies (See Notes 13 and 14) |
|
Redeemable preferred stock - | 37,500
Non-redeemable preferred stock (involuntary |
liquidating value, 1993 - $1,102) - | 248
Common stock 12,000 | 18,103
Warrants 15,613 | -
Additional paid-in capital 65,700 | 239,870
Accumulated deficit - | (187,896)
Pension liability adjustment - | (21,157)
Treasury stock, at cost - | (36,572)
Total liabilities and shareholders' equity $579,411 | $924,885
|
The accompanying Notes to Financial Statements are an integral part of the
Financial Statements.
5
</TABLE>
<TABLE>
LONE STAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands)
<CAPTION>
Predecessor Company
For the Three Months
Ended March 31,
1994 1993
<S> <C> <C>
Cash Flows from Operating Activities:
Loss before cumulative effect of change in
accounting principle and extraordinary item ($150,638) ($13,575)
Adjustments to arrive at net cash used
by operating activities:
Depreciation and depletion 6,688 6,584
Deferred income taxes 155 463
Provision for doubtful accounts 260 369
Provision for crosstie litigation settlement (6,500) -
Changes in operating assets and liabilities:
Accounts and notes receivable 22,157 8,216
Inventories and other current assets (17,189) (17,996)
Accounts payable and accrued liabilities (1,808) (5,922)
Unremitted earnings of joint ventures 619 786
Adjustments to fair value 133,917 -
Other reorganization items 13,396 2,608
Other, net (6,126) 2,155
Net cash used by operating activities before
reorganization items (5,069) (16,312)
Operating cash flows from reorganization items:
Interest received on cash accumulated
because of Chapter 11 proceedings 1,998 1,143
Professional fees and administrative expenses (5,849) (2,564)
Professional fees escrow pursuant to the
reorganization plan (12,431) -
Net cash used by reorganization items (16,282) (1,421)
Net cash used by operating activities (21,351) (17,733)
Cash Flows from Investing Activities:
Capital expenditures (6,695) (3,102)
Proceeds from sales of assets held for sale 2,457 -
Collection of notes receivable 93 211
Advances to equity investees - (5,000)
Other, net (293) (202)
Proceeds from sales of assets due to Chapter 11
proceedings - 721
Net cash used by investing activities (4,438) (7,372)
Cash Flows from Financing Activities:
Cash distribution pursuant to the reorganization plan (200,451) -
Transfer to liquidating corporation (5,010) -
Reduction of production payment (1,000) (4,000)
Net cash used by financing activities (206,461) (4,000)
Net decrease in cash and cash equivalents (232,250) (29,105)
Cash and cash equivalents, beginning of period 244,397 168,605
Cash and cash equivalents, end of period $12,147 $139,500
The accompanying Notes to Financial Statements are an integral part of the
Financial Statements.
6
</TABLE>
NOTES TO FINANCIAL STATEMENTS
Note 1
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments
necessary to present fairly the financial position of the company
as of March 31, 1994, and the results of operations and the cash
flows for the three months ended March 31, 1994 and 1993. As
discussed in Notes 2, 3, and 4, the company emerged from its
bankruptcy proceedings on April 14, 1994, with an effective date
for accounting purposes of March 31, 1994. Accordingly, the
March 31, 1994 accompanying consolidated balance sheet represents
the financial position of the reorganized Lone Star as of the
effective date. The property, plant and equipment balances of
reorganized Lone Star are based on preliminary fair market value
appraisals, and are subject to changes as appraisals are
finalized. The financial statements contained herein should be
read in conjunction with the financial statements and related
notes filed on Form 10-K, for the year ended December 31, 1993.
The company's operations are seasonal and, consequently, interim
results are not necessarily indicative of the results to be
expected for a full year. In addition, having operated for over
three years in bankruptcy, results of operations prior to
emergence from bankruptcy are not indicative of results of
operations outside of Chapter 11 proceedings.
Note 2 - Reorganization
In November 1989, in an effort to improve the company's operating
results and to generate cash to pay maturing debt obligations,
the company implemented a restructuring program involving the
sale of certain marginal operations and facilities. Although
progress was made in implementing the restructuring program,
depressed economic conditions and the shortage of financing
available to potential buyers during 1990 impeded the company's
ability to complete the sale of all assets within the time frame
and at the values estimated in 1989. In addition, during the
fourth quarter of 1990, the company was unable to secure short-
term borrowing arrangements, at acceptable terms and conditions,
following the termination of its revolving-credit agreement and
its agreement with financial institutions to sell trade
receivables in November 1990. Without such financing or other
sources of cash, the company probably would have been in default
under its long-term debt agreements in the first quarter of 1991.
The company decided to seek reorganization under Chapter 11 of
Title 11 of the United States Code ("Chapter 11") to achieve a
long-term solution to its financial, litigation and business
problems. On December 10, 1990 (the "petition date"), Lone Star
Industries, Inc. together with certain of its subsidiaries
(including two subsidiaries filing on December 21, 1990) ("filed
companies"), filed voluntary petitions for reorganization under
Chapter 11 in the United States Bankruptcy Court for the Southern
District of New York ("Bankruptcy Court"), and have been
operating their respective businesses as debtors-in-possession.
On February 17, 1994, with the approval of all classes of
creditors and equity holders, the Bankruptcy Court confirmed the
Lone Star Plan of Reorganization ("the plan"). On April 14, 1994,
the plan became effective, and distributions to creditors and
shareholders commenced (as provided by the plan, a reserve for
approximately $40,000,000 in disputed unresolved claims has been
established). In accordance with the confirmed plan, certain core
cement, ready-mixed concrete and construction aggregates
operations will constitute the reorganized Lone Star. Other non-
core assets of the company including the Nazareth, Pennsylvania
cement plant, the Santa Cruz, California cement plant and the
company's interest in the RMC LONESTAR, Hawaiian Cement and Lone
Star Falcon joint ventures and certain surplus real estate have
been transferred to Rosebud Holdings, Inc., a liquidating
subsidiary and its subsidiaries (collectively "Rosebud") for sale
and the distribution of the proceeds of sale, and of certain
litigation which has also been transferred to Rosebud, for the
benefit of creditors (See Note 5).
The company's plan provided for total allowed and reserved claims
of $590,944,000, which the company expects to be reduced to
approximately $584,016,000 when all claims are finalized. The
plan provided for allowed and reserved secured claims of
$435,000, allowed and reserved priority claims of $5,676,000, and
allowed and reserved convenience claims (under $5,000) of
$2,152,000, to receive full payment in cash. The plan also
provided for allowed and reserved unsecured claims of
$575,753,000, to receive their pro rata share of (i) $192,188,000
in cash, (ii) $78,000,000 ten year 10% senior unsecured notes of
the reorganized company, (The company's March 31, 1994 balance
sheet includes accrued interest of $1,300,000 for the period from
February 1, 1994 through March 31, 1994 per the terms of the
senior unsecured notes agreements) (iii) $138,118,000 secured
asset proceeds notes of Rosebud, to be paid out of the proceeds
from the disposition of its assets (See Note 5) and (iv) 85.0% of
the common stock of reorganized Lone Star. The aggregate
recovery on unsecured claims will depend on the ultimate value of
the common stock, the senior notes, and the secured notes (the
value of the secured notes will reflect the sums realized from
the disposition of assets of Rosebud).
Holders of preferred stock received their pro rata share of 10.5%
of the common stock of reorganized Lone Star and 1,250,000
warrants to purchase common stock of the reorganized Lone Star.
The holders of common stock of Lone Star received the balance of
the reorganized company's common equity and 2,753,333 warrants to
purchase common stock in the reorganized Lone Star. The warrants
are exercisable through December 31, 2000, and provide for the
purchase of shares of the common stock of reorganized Lone Star
at a price of $18.75 per share.
In addition, in accordance with its plan of reorganization, as
part of the agreement with the Pension Benefit Guaranty
Corporation ("PBGC") the company has granted the PBGC a mortgage
on the Oglesby plant, and a security interest in the Kosmos
Cement Company partnership, to secure its future pension
obligations.
Note 3 - Basis of Presentation
As of the effective date of the plan, the sum of allowed claims
plus post-petition liabilities of the company exceeded the value
of its preconfirmation assets. In addition, the company
experienced a change in control as pre-reorganization equity
holders received less than 50% of the new Lone Star common stock
issued pursuant to the plan. Therefore, in accordance with AICPA
Statement of Position No. 90-7, "Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code" ("SOP No. 90-7"),
the company has adopted "fresh-start" accounting which assumes
that a new reporting entity has been created and assets and
liabilities should be reported at their fair values as of the
effective date.
Although the plan became effective on April 14, 1994, for
accounting purposes the effective date of the plan is considered
to be March 31, 1994, and accordingly, the company has adopted
fresh-start reporting as of March 31, 1994. Adjustments were
recorded as of March 31, 1994 to reflect the effects of the
consummation of the plan of reorganization and to reflect the
implementation of fresh-start reporting. The reorganization
value of the company was determined using several factors and by
reliance on various valuation methods, including discounted cash
flows, price/earnings ratios and other applicable ratios.
Reorganization value generally approximates fair value of the
entity before considering liabilities and approximates the amount
a buyer would pay for the assets of the entity after the
restructuring. Based on information from parties in interest and
from Lone Star's financial advisors, the total reorganization
value of the Company is $579,411,000. The reorganization value
was then allocated to the company's assets and liabilities in
conformity with the Accounting Principles Board Opinion No. 16,
"Business Combinations" ("APB No. 16"), as specified by SOP 90-7.
Income related to the settlement of liabilities subject to
Chapter 11 proceedings is included in the accompanying
consolidated statement of operations as an extraordinary gain on
discharge of prepetition liabilities. The gains or losses
related to the adjustments of assets and liabilities to fair
value are included in reorganization items in the accompanying
consolidated statement of operations (See Note 8). The
reorganization value in excess of amounts allocable to
identifiable assets is the portion of the reorganization value of
the company which was not attributed to specific tangible or
identified intangible assets of the company.
Total equity of new Lone Star under fresh start reporting is less
than total equity included in the plan. This is due to the
different discount rates used to value the company's liability
for postretirement benefits other than pensions, in the plan and
under generally accepted accounting principles.
Note - 4
The effect of the plan of reorganization and the company's
adoption of fresh-start reporting on its March 31, 1994 balance
sheet are as follows:
Adjustments to Record
Effectiveness of the Plan of
Reorganization
(In Thousands)
Effects Fresh
Predec- of Plan of Start Succes-
essor Reorgan- Report sor
Company ization ing Company
Assets:
Current assets:
Cash including cash
equivalents .......... $ 220,466 $(208,319) $ - $12,147
Accounts and notes
receivable, net....... 42,758 (13,047) - 29,711
Inventories............. 50,135 5,248 (10,589) 44,794
Current assets of assets
held for sale.......... 22,991 (22,991) - -
Other current assets..... 5,856 12,391 (3,120) 15,127
Total Current assets 342,206 (226,718) (13,709) 101,779
Net assets of liquidating
subsidiary (See Note 5) - 208,668 (96,668) 112,000
Assets held for sale... 66,024 (66,024) - -
Notes receivable ....... 4,965 (4,860) - 105
Joint ventures.......... 89,405 (65,571) (6,334) 17,500
Property, plant and
equipment............ 397,638 (57,968) (7,407) 332,263
Reorganization value in
excess of amounts
allocable to identifiable
assets - - 14,372 14,372
Cost in excess of net
assets and deferred
charges... 9,132 - (9,132) -
Other assets and deferred
charges... 3,038 - (1,646) 1,392
Total assets $912,408 $(212,473) $(120,524) $579,411
Adjustments to Record
Effectiveness of the Plan of
Reorganization
(In Thousands)
Effects Fresh
Predec- of Plan of Start Succes-
essor Reorgan- Report- sor
Company ization ing Company
Liabilities and
Shareholders' Equity:
Current liabilities:
Accounts payable..... $16,055 $ (128) $ - $ 15,927
Accrued liabilities.. 61,489 6,034 1,195 68,718
Other current
liabilities........ 2,471 523 - 2,994
Total current liabilities 80,015 6,429 1,195 87,639
Asset proceeds notes of
liquidating subsidiary - 112,000 - 112,000
(See Note 5)
Senior notes payable - 78,000 - 78,000
Production payment - 18,463 - 18,463
Deferred income taxes 3,506 - 1,494 5,000
Postretirement benefits
other than pensions... 142,715 - (17,455) 125,260
Other liabilities.... 31,565 12 5,808 37,385
Pensions - - 22,351 22,351
Liabilities subject to
Chapter 11 proceedings. 620,942 (620,942) - -
Equity:
Predecessor Company:
Redeemable preferred
stock............... 37,500 (37,500) - -
Non-redeemable preferred
stock 244 (244) - -
Common stock....... 18,103 (18,103) - -
Additional paid-in
capital.......... 239,874 291 (240,165) -
Retained earnings. (204,327) 127,229 77,098 -
Pension liability
adjustment........ (21,157) - 21,157 -
Treasury stock, at
cost............. (36,572) 36,572 - -
Successor Company:
Common Stock...... - 12,000 - 12,000
Warrants.......... - 15,613 - 15,613
Additional paid-in
capital.......... - 57,707 7,993 65,700
Total liabilities and
shareholders' equity. $912,408 ($212,473)($120,524) $579,411
The following entries record the provisions of the plan and the
adoption of fresh-start reporting:
Entries to record debt discharge: Debit Credit
Liabilities subject to Chapter 11
proceedings $584,016,000
Cash $200,451,000
Asset proceeds notes of
liquidating subsidiary (See Note 5) 112,000,000
Senior debt 78,000,000
Common stock 10,200,000
Additional paid-in-capital 55,845,000
Gain on discharge of
prepetition liabilities 127,520,000
$584,016,000 $584,016,000
Entries to record exchange of stock for stock:
Preferred stock $ 37,744,000
Common stock (old) 18,103,000
Treasury stock $36,572,000
Common stock (new) 1,800,000
Warrants to purchase common stock 15,613,000
Additional paid-in-capital 1,862,000
$ 55,847,000 $55,847,000
Entries to record other effects of the plan of reorganization:
Inventories $ 5,248,000
Net assets of liquidating
subsidiary 208,668,000
Other current assets 12,391,000
Liabilities subject to Chapter 11
proceedings 36,926,000
Reorganization expenses 291,000
Cash and marketable securities $ 7,868,000
Accounts receivable 13,047,000
Current assets of assets
held for sale 22,991,000
Assets held for sale 66,024,000
Notes receivables 4,860,000
Joint ventures 65,571,000
Property, plant & equipment 57,968,000
Accrued expenses and accounts payable 5,906,000
Other current liabilities 523,000
Production payment 18,463,000
Other liabilities 12,000
Additional paid-in capital 291,000
$263,524,000 $263,524,000
Entries to record the adoption of fresh-start reporting and
to eliminate the deficit:
Debit Credit
Reorganization value in excess
of amounts allocable to
identifiable assets $14,372,000
Postretirement benefits other than
pensions 17,455,000
Gain on discharge of prepetition
liabilities 127,520,000
Additional paid-in capital 232,172,000
Inventories $10,589,000
Other current assets 3,120,000
Net assets of liquidating
subsidiary 96,668,000
Joint ventures 6,334,000
Property, plant & equipment 7,407,000
Cost in excess of net assets
and deferred charges 9,132,000
Other assets and deferred charges 1,646,000
Accrued expenses and accounts payable 1,195,000
Pensions 22,351,000
Other liabilities 5,808,000
Deferred income taxes 1,494,000
Pension liability adjustment 21,157,000
Accumulated deficit 204,618,000
$391,519,000 $391,519,000
The company's emergence from Chapter 11 proceedings has resulted
in a new reporting entity with no retained earnings or
accumulated deficit as of March 31, 1994. Accordingly, the
company's consolidated financial statements for periods prior to
March 31, 1994 will not be comparable to consolidated financial
statements presented on or subsequent to March 31, 1994. A black
line has been drawn on the accompanying consolidated balance
sheets to distinguish between the pre-reorganization and post-
reorganization company.
Note 5 - Rosebud Holdings, Inc. Liquidating Subsidiary
As part of its extinguishment of debt, Lone Star transferred on
April 14, 1994 certain non-core assets to Rosebud Holdings, Inc.,
a wholly-owned liquidating subsidiary, and its subsidiaries
(collectively "Rosebud"). Those assets transferred consist of
the company's interest in the RMC LONESTAR, Lonestar Falcon and
Hawaiian Cement partnerships, cement plants in Santa Cruz,
California, and Nazareth, Pennsylvania, certain promissory notes
executed by RMC LONESTAR, certain surplus real estate, the
company's interest in any recovery resulting from the litigation
against Northeast Cement Company and its affiliates, Lafarge
Corporation, and Lafarge Canada, Inc., certain other
miscellaneous litigation and insurance claims, and a $5,000,000
cash investment by the company to be used for working capital
purposes. The
company is under no obligation to fund additional Rosebud working
capital requirements.
It was estimated in the company's plan that disposition of the
non-core assets would generate, over time, gross proceeds of
approximately $113,000,000 to $170,000,000. Lone Star's
investment in Rosebud is included in Lone Star's March 31, 1994
fresh start balance sheet at $112,000,000, which is the present
value of estimated net proceeds generated by the sale of assets
and collection of insurance claims and cash generated from
operations, and was determined by using the middle of the range
of the proceeds contained in the plan, discounted at 14%. This
amount does not include any amount for potential recovery from
any litigation including the Northeast Cement Company litigation
(See Note 14).
At the effective date of the plan, Rosebud issued asset proceeds
notes in the aggregate principal amount of $138,118,000. The
asset proceeds notes bear interest at a rate of 10% per annum
payable in cash or in additional asset proceeds notes in semi-
annual installments. The notes are to be repaid as Rosebud's
assets are sold and proceeds, if any, are received in connection
with the litigation transferred to Rosebud. All cash proceeds
less a $5,000,000 cash reserve are to be deposited in a cash
collateral account for distribution to the noteholders. The
notes mature on July 31, 1997. These notes are guaranteed, in
part, by Lone Star. In the event that, at the maturity date, the
aggregate amounts of all cash payments of principal and interest
on the notes is less than $88,118,000, the guarantee is payable
to cover the shortfall between the actual payments and
$88,118,000 dollar for dollar plus interest provided however that
the amount paid pursuant to the guarantee cannot exceed
$28,000,000. The asset proceeds notes are recorded on Lone
Star's March 31, 1994 fresh start balance sheet at an amount
equal to the investment in Rosebud of $112,000,000.
Note 6 - Production Payment
The company's production payment agreement terms were revised as
of April 14, 1994. The new note, with an outstanding principal
balance of $20,963,000 as of that date, bears interest at a rate
of either prime or LIBOR plus 1.75% through December 31, 1995 and
either prime plus .25% or LIBOR plus 2.5% beginning on January 1,
1996. The principal balance is payable semi-annually through
July 31, 1998 in increasing installments.
Note 7 - Revolving Credit Line
Upon emergence from Chapter 11, the company entered into a three
year $35,000,000 revolving credit agreement which is
collateralized by inventory, receivables, collection proceeds and
certain intangible assets. The company's borrowings under this
agreement are limited to 55% of eligible inventory plus 85% of
eligible receivables. The advances under the agreement bear
interest at a rate of either prime plus 1.25% or LIBOR plus 3%.
A fee of .50% per annum is charged on the unused portion of the
line.
Note 8 - Reorganization Items
The effects of transactions occurring as a result of the Chapter
11 filings have been segregated from ordinary operations in the
accompanying consolidated statements of operations. Such items
for the three months ended March 31, 1994 and 1993 include the
following (in thousands):
For the Three Months
Ended March 31,
1994 1993
Professional fees and administrative
expenses............................ $ (15,431) $ (3,751)
Interest income...................... 2,035 1,143
(13,396) (2,608)
Adjustments to fair value................. (133,917) -
$ (147,313) $ (2,608)
Note 9 - Restructuring Program
In November 1989, the Board of Directors approved a restructuring
program which included the proposed sale of certain facilities
and marginal businesses, interests in certain joint ventures, an
investment in preferred stock, surplus real estate, and certain
other assets. The assets held for sale, including related
current and other assets, were classified as assets held for sale
in the accompanying consolidated December 31, 1993 balance sheet
at their estimated net realizable values. As a result of the
effectiveness of the company's plan of reorganization, certain
assets included in the restructuring program have been
transferred to Rosebud to be sold with the proceeds to be used to
pay off the asset proceeds notes.
In accordance with the plan, the company will retain the Pryor,
Oklahoma and Maryneal, Texas cement plants. The results from the
operations which the company is retaining, but which were
previously classified as assets held for sale, consist of net
sales of $14,030,000 and $11,229,000 for the three months ended
March 31, 1994 and 1993, respectively, and pre-tax income of
$1,278,000 and $1,200,000 for the three months ended March 31,
1994 and 1993, respectively.
Note 10 - Kosmos Cement Company
Summarized financial information of Kosmos Cement Company, a 25%
owned partnership which produces and sells cement in Kentucky and
Pennsylvania, for the three months ended March 31, 1994 and 1993
is as follows (in thousands):
For the Three Months
Ended March 31,
1994 1993
Net sales................................... $ 6,825 $ 7,451
Gross profit................................ $ 159 $ 143
Income (loss) before cumulative effect of
change in accounting principle............ $ (59) $ 83
Cumulative effect of change in
accounting principle................ $ - $(3,126)
Net loss................................... $ (59) $(3,043)
In the first quarter of 1993, the Kosmos Cement Company
partnership adopted Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other
than Pensions". As a result, the company recognized a charge of
$782,000 or $0.05 per share representing its share of the
partnership's cumulative effect of the change in accounting
principle.
Note 11 - Cash and Cash Equivalents
Cash equivalents include the company's marketable securities
which are comprised of short-term, highly liquid investments with
original maturities of three months or less. Interest paid
during the first three months of 1994 and 1993 was $20,000 and
$32,000, respectively. Income taxes paid during the first three
months of 1994 and 1993 were $756,000 and $26,000, respectively.
Note 12 - Interest
Interest expense of $271,000 and $519,000 has been accrued for
the three months ended March 31, 1994 and 1993, respectively.
Interest capitalized during the first three months of 1994 and
1993 was $38,000 and $46,000, respectively.
The filed companies stopped accruing interest on all of their
unsecured debt as of the petition date. The amount not accrued
for the three months ended March 31, 1994 and 1993 was $7,398,000
and $7,426,000. These amounts do not include any interest
related to letters of credit which originally supported debt with
principal amounts of $64,187,000 at March 31, 1994 and which
contained no contractual provision for interest.
Note 13 - Environmental Matters
The company is subject to federal, state and local laws,
regulations and ordinances pertaining to the quality and the
protection of the environment. Such environmental regulations
not only affect the company's operating facilities but also apply
to closed facilities and sold properties.
While it is not possible to predict with accuracy the range of
future costs for the company's program of compliance with current
or future environmental regulations or their expected impact on
the company, the capital, operating and other costs of the
program could be substantial.
In order to save on fuel costs, the company is blending and
burning waste fuels at two of its cement manufacturing plants and
this process involves obtaining permits and complying with
applicable state and federal environmental regulations. While
the company believes it is in substantial compliance with such
regulations, changes in them or in their interpretation by the
relevant agencies could effectively prohibit the use of, or make
prohibitive the cost of using, waste fuels, thus depriving the
company of the savings. In February 1994, the United States
Court of Appeals for the District of Columbia Circuit (i) vacated
and remanded a standard promulgated by the U.S. Environmental
Protection Agency ("U.S. EPA") for ascertaining the presence of
products of incomplete combustion, specifically in wet process
cement kilns that burn hazardous waste fuels, ruling that the
standard had been promulgated without sufficient notice, but (ii)
upheld related non-specific standards as applicable to wet kilns.
In April 1994, the Circuit Court denied plaintiffs' motion to
reconsider its decision. Unless the Court's decision is reversed
or a modification of the remanded standard is adopted by U.S.
EPA, the company's Greencastle, Indiana cement plant may have to
cease or curtail its use of hazardous waste fuels. The company,
with other cement producers has moved for a stay of the effect of
the decision pending an appeal to the U.S. Supreme Court.
Meanwhile, the company is investigating modifications to
operations at this plant that would enable it to continue to burn
hazardous waste fuels under the surviving standards. The Court's
ruling does not affect the use of hazardous waste fuels at the
company's Cape Girardeau, Missouri cement plant.
Since 1991, federal and state environmental agencies have
conducted inspections and instituted inquiries and administrative
actions regarding waste fuel operations at both of the company's
waste fuel burning facilities. In September 1993, U.S. EPA,
Region 5, commenced an administrative enforcement action alleging
violations of certain requirements of the federal Resource
Conservation and Recovery Act, against the company regarding the
use of hazardous waste fuels at the Greencastle, Indiana cement
plant and seeking civil penalties totaling over $3,800,000 and
certain affirmative injunctive relief. The action against the
company was one of thirty such actions (against a number of
entities) brought as part of an EPA Headquarters Enforcement
Initiative seeking aggregate fines in excess of $19,800,000. The
company has executed a Consent Agreement and Final Order with the
agency, approved by the Bankruptcy Court, whereby it has paid
$315,000 in civil penalties and is not subject to specific
injunctive relief beyond complying with regulations. The company
is also entering into a consent order, subject to Bankruptcy
Court approval, with state environmental authorities relating to
alleged violations of state regulations regarding the handling of
waste fuels at the Greencastle plant. In March 1994, U.S. EPA
instituted an administrative proceeding regarding waste fuel
operations at the company's Cape Girardeau plant, seeking over
$500,000 in civil penalties. The company is holding settlement
negotiations with officials of U.S. EPA, Region 7.
The Bevill Amendment to the federal Resource Conservation and
Recovery Act, as amended ("RCRA"), 42 U.S.C. Sec. 6901, et seq.,
which relates to environmental management of cement kiln dust, a
by-product of cement manufacturing, is currently under review by
U.S. EPA and may be substantially altered. It is impossible at
this time to predict with accuracy what increased costs (or range
of costs), if any, changes in the regulation of CKD disposal
would impose on the company.
The company and certain of its subsidiaries have been identified
as parties that may be held responsible by various federal, state
and local authorities with respect to contamination at certain
sites of former operations or sites where waste materials from
the company or its subsidiaries, such as equipment containing
polychlorinated biphenyls, were deposited, including sites placed
on the National Priority List ("NPL") pursuant to the
Comprehensive Environmental Response, Compensation and Liability
Act (known as "CERCLA" or the "Superfund Act"). These include
sites located: in Utah (seven sites, including three NPL sites
discussed below); Illinois (one NPL site); Texas (three sites,
including one NPL site); Missouri (one NPL site); Washington (two
NPL sites); Minnesota (two sites, including one NPL site);
Colorado (one NPL site); Florida (four sites, including two
related NPL sites and two non-NPL sites described below);
California (one non-NPL site described below); and Pennsylvania
(one NPL site).
Except for the Utah NPL site described below, all of the NPL
sites referred to above involve numerous potentially responsible
parties ("PRP's") and factual investigation indicates that in
each case the company's or subsidiary's contributions of waste
were small in comparison to those of other PRP's. Except for the
Utah sites, no bankruptcy claims were filed by the agencies with
respect to NPL sites, none of which is owned or leased by the
company or its subsidiaries. However, a number of PRP's filed
bankruptcy claims with respect to various NPL sites; these claims
have either been (i) allowed in full as de minimis, (ii) resolved
through negotiation and allowed as general unsecured claims or
(iii) objected to in the company's Chapter 11 proceedings.
Following are descriptions of proceedings involving certain NPL
and non-NPL sites mentioned above:
In July 1989, the company was advised by U.S. EPA, Region 8 that
it was a PRP under CERCLA with respect to three adjoining sites
in Salt Lake City, Utah on which CKD from the company's Utah
cement plant had been deposited and in July 1990, the EPA and the
Utah Department of Health issued a record of decision selecting a
remedial action calling for removal of the CKD, over a period of
time, to a location to be selected in the Salt Lake City vicinity
where an industrial type landfill would be constructed. The
company has reached agreement with the U.S. Department of
Justice, the State of Utah and certain county authorities
regarding a settlement of outstanding claims relating to CKD
deposits at all Utah sites (including three non-NPL sites)
pursuant to which EPA will receive a general unsecured claim in
the company's bankruptcy proceedings in exchange for releases
from further liability for investigation and clean-up costs and
natural resource damage claims and protection against third-party
claims for investigation and clean-up costs. The agreement is
under review by higher level authorities in the respective
governmental agencies. It is also subject to a public notice and
comment period and to approval by the Bankruptcy Court.
In October 1989, the company commenced an action in United States
District Court in Utah seeking contribution from the two
principal owners of these Utah NPL sites, who had also been named
PRP's, for their share of investigative clean-up costs.
Following pre-trial litigation, settlement agreements with the
landowners were negotiated and approved by the Bankruptcy Court,
pursuant to which the landowners receive general unsecured claims
in the company's bankruptcy proceedings and all their claims
against the company are dismissed with prejudice, subject to the
landowners' reaching settlements with EPA and the State,
negotiation of which is underway.
The total amount of general unsecured claims allowed and reserved
for and attributable to settlement and discharge in bankruptcy
for these Utah NPL sites, as well as certain non-NPL sites in
Utah where CKD was deposited, was $19,300,000.
In a transaction in the early 1970's, the company acquired
subsidiaries that conducted woodtreating or wood-dipping
operations at two sites in Florida. Contamination from chemicals
at these non-NPL sites has been the subject of various
proceedings by federal, state or local environmental authorities,
as well as lawsuits involving private parties.
In 1992, pursuant to an Administrative Order on Consent with U.S.
EPA, Region 4, entered into prior to its Chapter 11 filing, a
clean up of soils and water in excavated areas at the Dania,
Florida site was completed by a debtor-subsidiary of the company
and approved by EPA in 1992. The subsidiary has entered into a
stipulation with the State of Florida Department of Environmental
Protection ("FDEP") (which filed a claim in the company's
bankruptcy proceedings) committing to undertake a groundwater
monitoring program and, if necessary, groundwater treatment in
exchange for the State's withdrawing its bankruptcy claim. The
subsidiary is currently negotiating a consent order with FDEP
setting forth the monitoring and possible remediation efforts in
detail. This site has been transferred to Rosebud pursuant to
the plan.
In 1992, pursuant to a stipulation in Florida state court,
executed prior to its Chapter 11 filing, a debtor-subsidiary of
the company completed the clean-up of soils under Florida
environmental regulations at a site in Dade County, Florida which
it had leased for woodtreating operations in the 1960's and
1970's. The subsidiary has executed a stipulation with state and
county environmental authorities regarding entry into a consent
order whereby the subsidiary would commit to undertake a
groundwater monitoring program and, if necessary, groundwater
treatment with a specified monetary cap in return for withdrawal
of bankruptcy claims.
Prior to its Chapter 11 filing, the subsidiary filed a lawsuit in
federal district court in Florida against other PRP's, including
past and present owners of the site, for cost recovery and
contribution under CERCLA. Two of the PRP's filed counterclaims
and claims against the subsidiary, an intermediate debtor-
subsidiary and the company in the bankruptcy proceedings. The
subsidiary has entered into a settlement agreement with the PRP's
pursuant to which they will reimburse the subsidiary for a
portion of its clean-up costs and dismiss their federal court and
bankruptcy claims with prejudice and the subsidiary will dismiss
its federal court claims against them with prejudice, while
committing to do further remediation work under a consent order
with the Florida environmental authorities.
In August 1992, Santa Cruz County, California environmental
authorities served written notice of a criminal and civil
investigation of long-term waste disposal practices at a site
formerly owned by the company and now owned by a partnership in
which the company holds an interest. The company entered into a
stipulation, approved by the Bankruptcy Court, whereby the
environmental authorities received an administrative claim in
the company's bankruptcy proceedings in exchange for release of
the company from all criminal and civil liabilities. Also, the
company is committed to undertake closure of the investigated
area. The company's interest in the partnership has been
transferred to Rosebud pursuant to the plan.
The company expects the cost related to clean-up, certain
monitoring, consulting and legal expenses, for operations
retained by the company and for the Dade County, Florida site,
should not exceed $7,900,000 which has been provided for in the
accompanying consolidated financial statements.
Note 14 - Litigation
Between 1983 and 1989 a Lone Star subsidiary (among those
formerly in bankruptcy) manufactured and sold approximately
500,000 concrete railroad crossties to various railroads. In
1989 and early 1990 purchasers of most of the crossties sued Lone
Star and such subsidiary, alleging that the crossties were
defective because of cracking, and seeking substantial
compensatory and punitive damages. The suits by four purchasers,
which sought damages of over $200,000,000 were consolidated for
pre-trial purposes in the U.S. District Court for the District of
Maryland under the Federal Courts Multi-District Rules. In
addition, an administrative proceeding was brought by the
Baltimore Mass Transit Authority ("MTA"), involving crossties
sold to the MTA, and an MTA procurement officer found Lone Star
and its subsidiary liable to the MTA for damages in an amount of
approximately $10,000,000.
Lone Star determined that it would be in the best interest of the
company to settle the proceedings brought by the railroads, and
in late 1992 Lone Star entered into separate agreements with each
of them providing for the release of their respective claims
against the company and its subsidiaries relating to the
crossties, and for the railroads to receive in the aggregate
allowed liquidated unsecured claims in its bankruptcy proceedings
of $57,200,000, for one railroad to receive a cash payment of
$5,000,000 and for the payment of $4,384,000 to another railroad
from an escrow fund established to hold the proceeds from the
sale of property by a Lone Star subsidiary on which that railroad
had obtained liens in the litigation. These agreements have been
approved by the Bankruptcy Court, and the $9,384,000 cash
payments have been made. The claims were treated in accordance
with the provisions of the company's plan of reorganization for
payment of claims of this type.
In 1989 Lone Star and its subsidiary filed a plenary action in
the Maryland Federal District Court, and third party complaints
in other actions, against Northeast Cement Co. and its
affiliates, Lafarge Corporation and Lafarge Canada, Inc.,
alleging breach of warranties in connection with the purchase
from Northeast Cement Co. by Lone Star's subsidiary of the cement
used to manufacture substantially all of the crossties involved
in the above proceedings and claiming a fraudulent sale of
defective cement. The plenary action and the third party
complaints sought compensatory damages growing out of the various
crosstie actions, including the foregoing settlements and defense
costs at approximately $15,750,000. The plenary action brought
against the cement supplier was tried before a jury in the
Maryland Federal District Court in late 1992. The jury found
that Lone Star had proven its claims of fraud, breach of certain
warranties and negligence, but Lone Star's recovery was limited
to $1,213,000 for direct lost profits due to limitations on the
awarding of damages in the trial judge's instructions to the
jury. Lone Star believed that these instructions were in error
and filed a motion for a new trial on damages based on the
judge's refusal to permit the jury to even consider certain
damages. The cement supplier also moved for judgment as a matter
of law and for a new trial. Following a hearing on March 5, 1993
the judge denied these motions. Lone Star consequently appealed
to the Federal Circuit Court of Appeals for the Fourth Circuit
for a new trial on the issue of damages. Lafarge also filed an
appeal. On April 7, 1994 the Fourth Circuit Court of Appeals
vacated the judgment of the District Court and remanded the case
for a new trial on all issues relating to both liability and
damages. A request by Lafarge for a rehearing of that decision
by the Fourth Circuit Court of Appeals en banc was denied. The
rights to any recovery of damages in this action have been
assigned to Rosebud pursuant to the plan.
The primary insurance carrier insuring the company has asserted
that Lone Star has only limited insurance coverage for the
various crosstie claims and, while agreeing that certain defense
costs are covered by insurance, did not agree to Lone Star's
position as to the amount of defense costs covered.
Consequently, in 1989 Lone Star began an action in the Superior
Court of the State of Delaware against the insurance companies
(both primary and excess carriers) which insured it during the
1983 to 1989 period, seeking a declaratory judgment as to their
duty under the applicable policies to indemnify Lone Star for all
damages incurred by it in the various crosstie proceedings which
includes the settlements of $66,584,000 and as to the duty of the
primary insurance carrier to pay the costs of defending those
proceedings. The Superior Court made a preliminary ruling that
the primary insurance carrier has a duty to pay certain of the
costs of the company's defense in the crosstie proceedings. With
the approval of the Bankruptcy Court, Lone Star settled its
claims against the primary insurance carrier for defense costs
for a payment to Lone Star of $12,700,000 in cash; potential
future cash payments of $2,033,000; and setoffs to the carrier's
claim in the bankruptcy of approximately $4,778,000.
Lone Star, with the approval of the Bankruptcy Court, settled its
indemnity action against the primary insurance carrier in March
1994 for $6,500,000 as a set-off to a claim in the bankruptcy of
that carrier. Lone Star and certain of the remaining insurance
carriers have been negotiating a settlement of the indemnity
action. Pre-trial preparation in the action has been stayed by
agreement of the parties during these negotiations. The rights
to any additional recoveries from insurance carriers has been
assigned to Rosebud pursuant to the plan. Rosebud anticipates
continuing the indemnity action against any insurance carrier as
to which no settlement is reached.
A settlement has been reached in the consolidated shareholders'
class action lawsuits brought against the company and certain of
its past and present officers and directors. The settlement
involves the actions entitled Cohn v. Lone Star Industries, Inc.,
et al. filed in November 1989 on behalf of persons who purchased
Lone Star common stock between February 8, 1988 and November 16,
1989 and the action entitled Garbarino, et ano. v. Stewart, et
al. filed in December 1990 on behalf of persons who purchased
Lone Star common stock between November 16, 1989 and December 9,
1990. The settlements were adopted and approved by an order and
final judgment of a magistrate judge and the order and judgment
was in turn approved and adopted by an order of the U.S. District
Court for the District of Connecticut on January 20, 1994.
The terms of the settlement agreement, which was entered into by
Mr. James E. Stewart, the former Chairman and Chief Executive
Officer of Lone Star, includes the dismissal of the claims
against Mr. Stewart and the officers and directors of Lone Star
and the agreement of Lone Star's directors and officers liability
insurers to pay $40,000,000 to establish settlement funds on
behalf of the plaintiff classes. In order to participate in
these settlement funds, eligible plaintiffs must submit a proof
of claim by July 29, 1994. Distribution from these settlement
funds is to take place on or about October 29, 1994. Lone Star
has been dismissed without prejudice from the Cohn action, the
only action in which it was named as a defendant by the
plaintiffs. The settlement does not constitute an admission by
Lone Star, or any of its past and present officers, directors and
employees of any liability or wrongdoing on their part. In
connection with the company's bankruptcy proceedings, in order to
resolve the matter and without admitting any liability, a claim
in the aggregate of $2,500,000 was paid to the plaintiff classes
by the company. The proceeds for the claim have been added to
the settlement funds for distribution in October 1994.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In November 1989, in an effort to improve the company's operating
results and generate cash to pay maturing debt obligations, the
company implemented a restructuring program involving the sale of
certain marginal operations and facilities. The company was
unable to complete the sale of all assets within the projected
time frame and at values estimated in 1989. In addition, during
the fourth quarter of 1990, the company was unable to secure
short-term borrowing arrangements at acceptable terms and
conditions following the November 1990 termination of its
revolving-credit agreement and its agreement with financial
institutions to sell trade receivables. Without such financing
or other sources of cash, the company would probably have been in
default under its long-term debt agreements in the first quarter
of 1991. The company decided to seek reorganization under
Chapter 11 of Title 11 of the United States Code ("Chapter 11")
to achieve a long-term solution to its financial, litigation and
business problems. On December 10, 1990 (the "petition date"),
Lone Star Industries, Inc. together with certain of its
subsidiaries (including two subsidiaries filing on December 21,
1990), filed voluntary petitions for reorganization under Chapter
11 in the United States Bankruptcy Court for the Southern
District of New York ("Bankruptcy Court"), and began operating
their respective businesses as debtors-in-possession. On
February 17, 1994 the company's plan of reorganization, which had
been approved overwhelmingly by the company's creditors and
security holders, was confirmed without objection. The plan of
reorganization became effective on April 14, 1994 (See Note 2).
In connection with its plan of reorganization, the company
adopted fresh start reporting as of March 31, 1994 for accounting
purposes. The results for the first quarter of 1994 include an
expense of $133.9 million related to the adjustment of assets and
liabilities to their respective March 31, 1994 fair values and an
extraordinary gain of $127.5 million related to the discharge of
prepetition liabilities.
Results of Operations
Net Sales
Consolidated net sales of $33.7 million were $1.2 million higher
than the comparable prior year period reflecting higher shipments
of cement and ready-mixed concrete, partially offset by lower
sales of construction aggregates. Cement sales of $24.6 million
were $2.4 million greater than the comparable prior year period
reflecting increased domestic cement shipments particularly from
the Cape Girardeau, Missouri cement plant due to stronger demand
and higher average net realized cement selling prices at all
locations. The favorable sales volume was partly offset by lower
cement sales from the Nazareth, Pennsylvania cement plant
(subsequently transferred to the liquidating subsidiary) as
shipments were adversely effected by severe winter weather
conditions in the Northeast.
Sales of construction aggregates of $2.8 million were $2.2
million below the comparable prior year period. The reduction in
shipments of construction aggregates reflects a slow start in
construction activity caused by the prolonged and adverse winter
weather conditions experienced in the Northeast this year. These
adverse conditions extended into the month of March, which
delayed the opening of customer asphalt and ready-mix concrete
plants. Also contributing to the lower aggregate shipments was
the shortage of available commercial freighters to transport
construction aggregates from the company's Canadian operation to
the Caribbean market.
Ready-mix concrete and concrete products sales were $6.1 million,
$1.1 million above the comparable prior year period reflecting
higher shipments of ready-mixed concrete, concrete block, and
building materials due to increased business activity and higher
average net realized selling prices.
The company's operations are seasonal and, consequently, the
interim results are not necessarily indicative of the results to
be expected for the full year.
Pre-tax income from joint ventures of $0.4 million for the first
quarter of 1994 was $1.2 million below the comparable prior-year
period due to the sale of the company's Brazilian investment in
September, 1993 which contributed pre-tax joint venture earnings
of $3.5 million in the first quarter of 1993. Results from the
RMC LONESTAR partnership increased $2.7 million from the
comparable prior year period due to higher shipments, the result
of increased construction activity, favorable weather conditions,
and lower per unit production costs associated with increased
production volumes. Results from the Hawaiian Cement partnership
decreased $0.4 million from the first quarter of 1993 reflecting
lower shipments of cement, construction aggregates, and ready-
mixed concrete as a result of a slowdown in the construction
industry in Hawaii. Pre-tax income from the Kosmos Cement
Company joint venture approximated the comparable prior year
period's results.
Included in income in the first quarter of 1994 is an insurance
settlement of $6.5 million from the company's primary carrier
regarding indemnification pursuant to the railroad crosstie
litigation. The settlement was offset against a claim in the
bankruptcy of that carrier.
Cost of sales of $29.7 million for the first quarter of 1994 was
$1.2 million higher than the comparable prior year period
primarily due to higher cement and ready-mix costs reflecting
higher shipments. This was partly offset by lower sales of
construction aggregates and the delayed startup of production at
the domestic construction aggregates plants.
Selling, general and administrative expenses of $9.8 million were
$0.4 million lower than the comparable prior year period.
Reorganization items, related to the bankruptcy, of $147.3
million during the first quarter of 1994 were $144.7 million
higher than the comparable prior-year period primarily reflecting
fresh start reporting adjustments to fair value of fixed assets,
and higher professional fee expenses and higher administrative
costs associated with the emergence from Chapter 11.
Income tax expense of $0.2 million for the first quarter of 1994
was $1.7 million lower than the comparable prior-year period
reflecting lower foreign taxes due to the sale of the Brazilian
operation in September 1993.
The results of the first quarter of 1994 include an extraordinary
gain of $127.5 million related to the discharge of prepetition
liabilities (See Note 3).
In the first quarter of 1993, the company's partner in the Kosmos
Cement Company partnership, which owns a 75% interest in the
partnership (the company owns the remaining 25% interest),
adopted Statement of Financial Accounting Standards No. 106,
"Employers Accounting for Postretirment Benefits Other than
Pensions" ("SFAS No. 106"). As a result, the company recognized
a charge of $0.8 million representing its share of the
partnership's cumulative effect of the change in accounting
principle. There were no changes in accounting principles during
the first quarter of 1994.
The net loss of $23.1 million for the first quarter of 1994 is
$8.9 million greater than the comparable prior year period.
Included in the first quarter 1994 results are reorganization
expenses of $147.3 million relating to adjustments of assets and
liabilities to their respective fair values, and increased
professional fees and administrative costs associated with the
company's reorganization. These reorganization expenses are
partly offset by an extraordinary gain of $127.5 million due to
the discharge of pre-petition liabilities and a $6.5 million
insurance recovery relating to indemnification pursuant to the
railroad crosstie litigation. The first quarter of 1993 results
reflect pre-tax joint venture income of $3.5 million provided by
the Brazilian subsidiary, which was sold in September 1993, and a
charge for the cumulative effect of a change in accounting
principle of $0.8 million. Excluding the pre-tax earnings from
the Brazilian joint venture and the insurance recovery, pre-tax
operating results for the first quarter of 1994 were $2.9 million
better than the same prior year period. This increase reflects
higher results from the cement and ready-mix operations and
domestic joint ventures on higher shipments due to increased
business activity and lower selling, general and administrative
expenses. The increase was partly offset by decreased results
from construction aggregates primarily reflecting lower shipments
as a result of severe winter weather conditions.
Financial Condition
In accordance with the company's plan of reorganization which
became effective on April 14, 1994, the company settled its
prepetition claims through the disbursement of $200.5 million in
cash and the issuance of senior notes in the principal amount of
$78.0 million, asset proceed notes with a face value of $138.1
million and 12,000,000 shares of new common stock, of which 85%
was distributed to the prepetition creditors.
Holders of preferred stock received their pro rata share of 10.5%
of the new common stock and 1,250,000 warrants to purchase common
stock. The holders of the company's old common stock received
the balance of the new company's common stock and 2,753,333
warrants to purchase common stock. Both preferred stock issues
and the old common stock were cancelled upon the effectivevess of
the plan.
In addition, the company adopted fresh start reporting as of
March 31, 1994, including adjustments for bankruptcy related cash
transactions through the effective date to properly reflect the
company's reorganization. Through the adoption of fresh start
reporting the company has recorded its assets and liabilities at
fair value on March 31, 1994 and as such, balance sheet
comparisons are not meaningful. A black line has been used to
separate the December 31, 1993 and the March 31, 1994 balance
sheets to emphasize the fact that the March 31, 1994 balance
sheet belongs to reorganized Lone Star, a different reporting
entity than old Lone Star.
The company was under the protection of the Bankruptcy Court for
the period from December 10, 1990 to April 14, 1994. During this
period, the company was relieved from paying certain prepetition
obligations and interest on substantially all of its debt, as
well as receiving interest income on its cash balances. These
benefits were partly offset by Chapter 11 professional fees and
administrative expenses. As a result of the effectiveness of the
plan, future cash flows from operations will no longer include
benefits from operating under the protection of Chapter 11.
Cash outflows from operating activities of $21.4 million in the
first quarter of 1994 reflect the funding of operating
requirements, and expenses for professional fees and
administrative costs associated with the reorganization which
were paid or put in escrow.
During the first quarter of 1994, the company used $4.4 million
for investing activities, primarily representing capital
expenditures, partly offset by proceeds from the sale of a former
cement plant site in March 1994.
The company is subject to federal, state and local laws,
regulations and ordinances pertaining to the quality and
protection of the environment. Such environmental regulations
not only affect the company's operating facilities but also apply
to closed facilities and sold properties. While it is not
possible at this time to assess accurately their expected impact
on the company, the capital, operating and other costs of
compliance with applicable environmental requirements (currently
in effect or likely to be in effect in the future) could be
substantial (See Note 13).
In early March 1994, the company, along with other cement
companies, received a civil investigative demand from the
Atlanta, Georgia Regional Office of the U.S. Department of
Justice Antitrust Division. The investigation concerns possible
violations of Section 1 of the Sherman Antitrust Act (price
fixing and market allocation) by cement sellers on a nationwide
basis and seeks company records relating to its cement business.
The company has a long-standing policy of complying with the
letter and spirit of the antitrust laws and intends to fully
cooperate with the investigation.
In 1989 Lone Star and its subsidiary filed a plenary action in
the Maryland Federal District Court, and third party complaints
in other actions, against Northeast Cement Co. and its
affiliates, Lafarge Corporation and Lafarge Canada, Inc.,
alleging breach of warranties in connection with the purchase
from Northeast Cement Company by Lone Star's subsidiary of the
cement used to manufacture substantially all of the crossties
involved in the railroad crosstie litigation proceedings and
claiming a fraudulent sale of defective cement. On April 7, 1994
the Fourth Circuit Court of Appeals vacated the judgment of the
District Court and remanded the case for a new trial on all
issues relating to both liability and damages (See Note 14). The
rights to any recovery of damages in this action have been
assigned to a subsidiary of Rosebud pursuant to the plan of
reorganization.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 14 of Notes to Financial Statements regarding
litigation involving the Company and certain of its
subsidiaries.
See Note 13 of Notes to Financial Statements regarding
environmental proceedings involving the Company and certain
of its subsidiaries.
See also Management's Discussion and Analysis of Financial
Condition and Results of Operations.
ITEM 2. CHANGES IN SECURITIES
The Company's Plan of Reorganization was confirmed by order
of the Federal Bankruptcy Court, Southern District of New
York on February 17, 1994. Subsequently, on April 14,
1994, the effective date of the Plan of Reorganization, and
in accordance with the Plan of Reorganization, the
Company's old Common Stock and the Company's $4.50
Cumulative Convertible Preferred Stock and $13.50
Cumulative Convertible Preferred Stock (the $13.50
Cumulative Convertible Preferred Stock and the $4.50
Cumulative Convertible Preferred Stock are jointly referred
to as "Preferred Stock") were cancelled. Each holder of
old Common Stock received the right to .032441 of a share
of new Common Stock and .165413 of a warrant to purchase a
share of new Common Stock for each share of old Common
Stock held. Each holder of Preferred Stock received the
right to 3.268151 shares of new Common Stock and 3.242214
warrants to purchase an equal number of shares of new
Common Stock for each share of Preferred Stock held.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
At March 31, 1994, dividends were in arrears aggregating
$17,937,000 on the Company's $13.50 Cumulative Convertible
Preferred Stock and $179,000 on the Company's $4.50
Cumulative Convertible Preferred Stock. Both of these
issues of Preferred Stock were subsequently cancelled on
April 14, 1994, the effective date of the Plan of
Reorganization.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index of Exhibits
11. Computation of earnings per common share.
Not filed as it would not be meaningful as a
result of the effectiveness of the Plan of
Reorganization.
(b) Reports on Form 8-K
Reports on Form 8-K were filed during the quarter for which
this Report is filed as follows:
(i) January 4 - reporting on Item 5 "Other Events".
(ii) February 17 - reporting on Item 5 "Other Events".
(iii) March 1 - reporting on Item 3 "Bankruptcy or
Receivership" and Item 7 "Financial Statements, Pro Forma
Financial Information and Exhibits".
(iv) March 25 - reporting on Item 5 "Other Events".
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, Lone Star Industries, Inc. has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
LONE STAR INDUSTRIES, INC.
Date: May 16, 1994 By: JOHN J. MARTIN
John J. Martin
Senior Vice President,
General Counsel and
Secretary
Date: May 16, 1994 By: WILLIAM E. ROBERTS
William E. Roberts
Vice President, Chief
Financial Officer and
Controller
